Artificial Intelligence? Or Prescience?

If you’re even a semi-regular reader of these musings, you likely know that whenever I’m prompted to “immortalize” some public figure with my half-baked attempt to utilize artificial intelligence, it’s usually done with a mix of both envy and respect, sometimes in spite of the fact that decisions the inspiration for my own version of an editorial “cartoon” may be disruptive and unpopular, but, more often than not, they’re being made by people who are more resillient and far, far richer than I (and perhaps you) will ever be.

Netflix’s Ted Sarandos certainly hits all of those tick marks and then some. And for most of the 21st century, he and his company have usually been right.    When they realized that people were inherently too forgetful, lazy or busy to make regular trips to a Blockbuster to return their weekend entertainment, he championed a way to have them do it by simply mailing DVDs back and forth.  When they realized that people had gotten even lazier that a trip to their mailbox was too much for them, he found a way to get that content to them by streaming it.  And when he saw that an awful lot of more short-sighted competitors were more than willing to license him a lot of content in order to get a piece of the action he identified, he was more than willing to take their money.  On the heels of that, he built a monolithic best-in-class operation.  And since pretty much the entire media industry is still trying to play catch-up with Netflix on many levels, most notably subscribers, even if it’s grudgingly he and the company have to be acknowledged as often being first movers, and, more often, ahead of any curve.

So during an appearance yesterday at the UBS Global TMT Conference, one could almost allow Ted to take the multiple victory laps and paint a compellingly positive picture that for whatever difficulties and concerns there may be about the streaming industry as a whole, particularly as we enter a new era of production where content creators were able to extract significant compensation gains, they apply far less to him and Netflix.

After all, any beliefs that the summer of 2023 could have caused a place like Netflix to be disrupted were perhaps wishful thinking, because, as THE WRAP’s Loree Weitz reported, they had been able to handle even more disruptive times quite well and, indeed, used it as a template to keep plowing along:

Sarandos said the COVID-19 pandemic helped the streamer prepare for disruptions in programming slates during this summer’s Hollywood double strike.  “Not that COVID was good for anybody, but it did help us develop a muscle about how to manage the slate and manage delivery in an unpredictable time like the strike(.) We’ve always had a very deep slate, so we didn’t really have much interruption in our delivery to our members.”

Besides, while that was going on, they were developing and reinforcing their commitments to more and more content where actors and writers aren’t really needed.  As DEADLINE’s Dade Hayes shared:

Sarandos said the company’s “disciplined” push into video games, which began two years ago, has already yielded “a bunch of positives.”

Operating margins, for one thing, have improved at Netflix from 4% to 20% since 2016, Sarandos said during a sit-down at the UBS Media and Communications Conference. Gaming is poised to contribute to that profitability, though Sarandos did not comment directly on the financials of the nascent gaming business. But one long-term incentive to be in the video game space, he said, is increasing subscriber retention and using games as a “bridge” between seasons of shows.

“They certainly attract a different demographic,” Sarandos said of games. “One of our really popular games we had is our version of Too Hot to Handle. What was great about the game — again, these are small numbers, we’re good with that — was that a bunch of the folks who played that game had not yet seen the show. They had so much fun playing the game that they started watching the show. That’s a really nice IP development we can do, a place to bridge season-to-season engagement with brands.”

And they’re also reinforcing their commitment to animation and still more content that won’t require paying as many of those increases to talent, as Hayes’ colleague Jill Goldsmith added:

Animated features are one area where Netflix will continue to grow — as eight of the top ten most streamed movies ever have been animated features, Sarandos told investors. Netflix recently inked a multi-year deal with Skydance Animation. Unscripted local language content is also an area of focus. “We’re just starting on that.”

And the results speak for themselves.  The Adam Sandler comedy LEO was far and away Netflix’s most-viewed English language movie over the Thanksgiving holiday, well ahead of more traditional Christmas fare and better received than was Disney’s WISH.

So not only is Netflix winning wars in ways that involve fewer humans, especially those in unions, they’re coercing a few of them they’re vanquishing to actually help them address some of the structural and financial issues that have hampered their recent Wall Street performances.

That distribution problem for their fledgling ad tier?  Well, VARIETY’s Todd Spengler reported that they’re finding a strange bedfellow with similar issues to address that:

Verizon is making its latest aggressive push to bundle up streaming packages – offering ad-supported versions of Netflix and Warner Bros. Discovery’s Max for $10 per month to wireless subscribers on unlimited plans. That’s about a 40% discount on the services compared with the $17/month it would cost to purchase them separately.  The Netflix-Max bundle offer is available starting Dec. 7 to Verizon mobile customers with certain unlimited plans. For the first time, Netflix and Max services will be offered together, available to Verizon wireless customers on Unlimited Welcome, Unlimited Plus or Unlimited Ultimate plans.  

On the heels of this weekend’s news that Apple TV+ and Paramount+ are offering a bundle, this news seems neither quite as surprising or as unprecedented as it otherwise might have.  But their could be other reasons why these two supposed competitors have joined forces.   Remember that WBD has recently licensed Netflix a whole slew of content they needed to realize returns on, and as DEADLINE’s Nellie Andreeva recently reported, that relationship was just reinforced:

The first five seasons of the popular Warner Bros. TV comedy series Young Sheldon start(ed) streaming on Netflix in the US starting Nov. 24. 

In the U.S., the Big Bang Theory spinoff had been streaming on Warner Bros. TV sibling Max which landed the exclusive streaming rights in 2020 having also secured exclusively the mothership series. Max had been billed as the U.S. streaming home of the Big Bang Theory franchise that also includes a new spinoff in development as a Max original.

That is now changing with the Young Sheldon U.S. streaming rights being shared by Netflix and Max, which will continue to carry the Big Bang Theory prequel. The move is part of the shift from exclusivity to licensing content that Max and Warner Bros. TV parent Warner Bros. Discovery – as well as other media companies – have made over the past year. It has included a number of HBO titles, including Insecure and Band Of Brothers, also getting licensed to Netflix on a non-exclusive basis.

And as Sarandos reminded, per Goldsmith again, something like this is not only not an outlier, he seems to think it was a predictable progression of natural events unfolding, and gives him yet another bargaining chip against making as much new stuff at the price increases the unions were able to extract:

Netflix may be making fewer movies than it used to — because it’s so much easier to license them now. As streaming losses mounted at traditional media companies there’s been a big shift, back to Netflix, which, in its early days used to pad studio coffers with cash until they got nervous, pulled back and more recently began aggressively repurposing content for their in-house platforms. That led to Netflix’ big push into original content. “We ramped up at that kind of aggressive pace because we had no access to license films” and not much of a library…What has happened is that the availability to license has opened up a lot more.” He cited deals with Sony and Universal (which just delivered, respectively, Spider-Man: Across The Spider-Verse and The Super Mario Bros. Movie. 

That’s “the more natural state of the business,” he said. Studios we’re “always built” to license. “The unnatural state was forced integration.”

These kind of approaches seem to bring out snarkers and whiners across the industry.  Recently, PUCK’s Matthew Baloney–er, Belloni–authored a particularly aggressive piece where he chided WBD’s David Zaslav with the headline “Maybe Don’t Sell Everything to Netflix”.  And in the wake of the Verizon annoucement of the Netflix-MAX ad-supported bundle, our friend Rick Ellis at TOO MUCH TV was quick to point out more than a few other pundits saw it as some sort of an abandonment of principles:

Ellis was wise enough to take a page from the Sarandos playbook to push back as warranted:

To be fair to Kate – who I think is a very perceptive and talented journalist – she was by no means the only industry veteran making the same snarky argument today…It astounds me how many people in the industry believe this…So here are the facts. Streamers cut packaging deals all of the time. And that is what these soft bundle deals are. Just packaging. They aren’t an indication of the streaming sectors’ weakness, but an indication that in general the streamers continue to be nimble when it comes to marketing and costs.

So easy as it may be to knock folks like Sarandos with cute little comic relief salutes as I sometimes am inclined to do, it’s not from the same place that the likes of O’Hare or Belloni come from.  Ted has every right to be as braggadaccio and confident as he was yesterday; besides, Wall Street’s far more judgmental than I or other “industry veterans” can be.

You know what they say.  You poke the bear; often, it pokes back.

Until next time…


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